Seavitt v. N-able, Inc., C.A. No. 2023-0326-JTL (Del. Ch. July 25, 2024)
Earlier this year, the Court of Chancery in West Palm Beach Firefighters’ Pension Fund v. Moelis (“Moelis”) invalidated a stockholders’ agreement that required a company’s Board to obtain preapproval from the company’s founder before taking certain acts, because the Court found that the agreement violated Section 141(a) of the DGCL, which vests governance authority with the Board. Following Moelis, the Delaware legislature enacted amendments to Section 122 of the DGCL, permitting agreements containing stockholder consent rights for certain corporate acts in exchange for consideration. Because the amendments did not become effective until August 1, 2024, the plaintiff could bring this case seeking to invalidate certain investor rights contained in a stockholders’ agreement. While this decision has been abrogated by the recent amendments, the Court’s ruling that private agreements referenced in a corporate charter are not “facts” for purposes of Section 102(d) remains instructive.
The corporation argued that the restrictions imposed by the stockholders agreement here were distinguishable from Moelis, because the charter and bylaws specifically stated they were “subject to” certain provisions in that agreement. Specifically, the corporation argued that DGCL Section 102(d) permits charter provisions to “be dependent upon facts ascertainable outside the charter,” and here, the “facts” were the referenced stockholders agreement provisions.
The Court of Chancery rejected the corporation’s argument. First, the Court found that provisions in a contract are not “facts” for purposes of Section 102(d). Second, the Court pointed to the nature of the stockholders agreement, which was necessarily private, versus the nature of a charter, which is public. Finally, the Court also observed that the DGCL requires approval from both the company’s board and stockholders to amend a charter, which would be frustrated if a charter could be effectively amended through modification of a private agreement referenced therein. Accordingly, the Court rejected the corporation’s defense in this regard.
